Potential Speculation in USD and JPY Foreign Exchange Market

What can be a Potential Speculation in USDJPY FX Market?
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What can be a Potential Speculation in USDJPY FX Market?
Covid-19 has brought major financial changes in the forex markets. Throughout 2020 the overall outlook of the forex markets has been flimsy and unpredictable. Depressed economic data and increased government stimulus have affected the flow of markets globally. Japanese yen is described to many people as a safe haven; however, in early 2021, we have experienced different aspects in terms of flow. For example, the USDJPY markets are expected to adjust trend due to increased interest rates due to the introduction of vaccines (Anil, 2021).
USA and Japan GDP
The roll-out of the Covid-19 vaccine will play an integral role in determining the recovery of the economy. The USA is taking Pfizer, Oxford, and AstraZeneca vaccines. Notably, GDP is one of the elements of the economy that affect the flow of forex markets. GDP has many benefits, and most traders use it as a metric tool to determine the right entries. In this case, since the introduction of vaccines, the GDP has contracted at a rate of 3.5 per cent since 2020 (Henry, 2020). The foreign markets will always thrive effectively in situations where the value of GDP is high. A high GDP value reflects that interest rates will also be favorable hence creating a good environment for currency trading. What is the relationship between GDP, interest rates and currency trading? Typically, when the economy of a country is thriving, the GDP increases, which increases consumer spending. Consumer spending pushes banks to tame interest rates making currency stronger.
The GDP of the USA is anticipated to recover by 4%; therefore, more jobs will be revered hence increased spending. Increased spending will make the USA dollar stronger and resilient in the foreign markets. On the other hand, the economy of Japan is anticipated to contract in Q1 due to the introduction of the Covid-19 vaccine. JPY is a base currency in USDJPY, which means it is directly affected by the USA dollar. For example, if the value of GDP in the USA is increased, US DOLLAR becomes stronger hence pushing the Japanese yen down. After the successful implementation of vaccines in the country, Japan’s GDP is expected to grow by 2.2% in Q2 (Anil, 2021). Minister of finance in Japan released preliminary remarks on the outlook of GDP in Q4.
Moreover, the government of Japan has not released the stimulus packages; hence the prediction of USDJPY will depend on GDP results. There are two scenarios that will take place in Japan; firstly, the government is battling the cover-19; hence traders will expect to have a strong GDP in the fourth quarter, which might call for bulls. Secondly, the value of treasury yields in the USA might weaken the USA dollar hence calling for bears.
Federal Reserve and Bank of Japan Monetary Stances
Federal reserve responded to Covid-19 in three distinctive stances, keeping policy rates low, backing credit flow, and stabilizing the financial market. FOMC (Federal Open market Committee) lower the fund rates, which impacts lending rate in banks. Fed...